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Help your adult child by closing your wallet

I read a series of articles today about how we are threatening our own retirement by “helping” our kids with their expenses. I was reminded of a conversation I had with my best friend from college. She told me that she was cutting off the money flow with her grown kids and although it was painful, she said, “the less you help them, the better off they are.”

On a website called Benefits Pro, an article called “How to keep grown kids from ruining your future retirement” by Marlene Y. Satter caught my attention.

“A BMO Wealth Institute survey, the report says, found that two-thirds of parents give money to their grown kids on a “when needed” basis, checkbook out in hand almost before they’re asked.

“But if instead you budget—and make Junior budget—for a specific amount at regular intervals, with a firm end date to such support, he’ll learn to budget better and you’ll have a light at the end of the tunnel so that you can get back to saving for retirement.

“Or, for that matter, enjoying retirement without that constant drain looming over your activities.

“Last but not least, you need to lay your cards on the table about the end of the financial support so that the kids know just how much all that parental help is costing you.

“They won’t be blindsided, you won’t feel resentful about the endless outflow of money if they’re working toward resolving their own situation—whether finding a job, finishing a degree or finding cheaper living quarters—and you’ll both be better off for knowing each others’ true financial states.

“After all, the Merrill Lynch research points out, 28 percent of parents are worried that they themselves might have to ask their kids for financial help some day.

“One way to avoid that—or at least postpone it—is to make sure that your kids learn financial independence by example.

“Set one.”

In a Market Watch article called “This is how much money parents lose supporting their adult children” by Kari Paul, she talks about how we can lose a quarter million dollars of our retirement funds by supporting our kids after they become adults.

“Leaving the nest doesn’t always mean entering financial independence for kids these days, and parents are paying a high price for it.

“Some 80% of parents are covering or have covered basic expenses for their children after they turn 18, which could cost parents $227,000 in lost savings over the course of retirement, a new study from personal finance website NerdWallet found.

“It calculated the impact on savings if costs of adult children had been put into a retirement savings account such as a 401(k) or IRA instead.

“ ‘As parents, we tend to want to do everything we can to help our children succeed. But sometimes we focus on the present at the expense of the future,” said Andrea Coombes, NerdWallet’s investing expert.

“Student debt, which has surpassed $1.4 billion, has also played a role in increasing reliance of young people on parents. Some 28% of parents have paid for part or all of their adult children’s tuition or loans. The average parent now takes out $21,000 in loans for a college education for their child.

“They are also paying for many basic, day-to-day costs for their adult children, including groceries (56%), health insurance (40%) and rent or housing outside the family home (21%). Some parents are also covering or have covered their adult child’s cellphone bill (39%) and car insurance (34%).”

Business Insider writer Elena Holodny quotes the same numbers in “Baby boomers could end up $227,000 richer if they stop bankrolling their adult children:”

“The two most expensive costs are living expenses and college tuition. And parents’ retirement savings could be $227,000 higher if they chose to save that money instead of spending it on their children’ living or schooling expenses, NerdWallet found.

“Andrea Coombes, a retirement and investing specialist at NerdWallet, said parents should run the numbers to figure out whether they can actually afford to help their children with their expenses.

“ ‘Parents who need to ramp up their savings rate should have a conversation with their children,” Coombes said. “Parents can let their children know they’re at risk of financial insecurity later in life and they don’t want to be a burden to their children.

“And parents should ask their adult children to start pitching in on some of these expenses. It’ll be good for the parents’ retirement, plus it models to the children the importance of budgeting, saving, and planning for the future.”

With my oldest child turning 25 next year, this topic is close to home. He is mostly independent financially and has been out of college for a little more than a year. We are there when he needs help—like something major. Like many of the parents in the articles above, we have him on our cell phone plan and pay his car insurance. He lives in the Bay area and it’s really expensive to live there. We keep telling him he doesn’t have to live in the most expensive city in the country and he’s come to realize that fact on his own. I think this New Year will be an ideal time to have a talk about when we’ll wean him off the cell phone plan and car insurance. I know for a fact he can’t afford more immediately, but he could plan for it. Plus, he’s in the process of making decisions about whether or not he’s going to return to school or move to a more affordable area.

My husband gets upset with me when I give our son money. It makes me feel good to be able to do so, but in my husband’s words, “You’re crippling him!”

What are your thoughts about funding adult children after they graduate from college?